CIRCLING SHARKS IN LANDLOCKED PARAGUAY

C O N F I D E N T I A L ASUNCION 000293

SIPDIS

WHA/FO CMCMULLEN, WHA/BSC MDRUCKER, BFRIEDMAN, MDASCHBACH

E.O. 12958: DECL: 05/06/2029
TAGS: PGOV ECON PREL SNAR PA
SUBJECT: CIRCLING SHARKS IN LANDLOCKED PARAGUAY

REF: A. ASUNCION 261

B. ASUNCION 284

Classified By: DCM Michael J. Fitzpatrick; reasons 1.4 (b) and (d).


1. (C) SUMMARY: As President Lugo approaches nine months in
office, he faces increasing political and social instability.
Rumors persist that former coup-plotting General Lino
Oviedo, ex-President Nicanor Duarte Frutos, and/or Vice
President Frederico Franco continue to look for ways to cut
Lugo's term short. Lugo's relations with his Vice President
are tense at best, and the political sharks surrounding Lugo
continue to circle in search of increased space and power.
Lugo has been bogged down by several paternity claims, and
allegedly shuffled his cabinet in order to distract the
public from his personal scandal. Unknown actors have
attempted to take advantage of the growing political
instability this week by placing several "bombs" (both real
and fake) in downtown Asuncion. Lugo insiders report that
the president is frustrated with his inability to affect
change, and we note backlash against some U.S.-funded
ministries or agencies that are working to root out
corruption. While one Lugo insider insists that Lugo's
morale is solid, we believe he is under great pressure, and
worry that the end game of some -- getting him to resign or
face impeachment -- may become an increasing possibility.
END SUMMARY.


2. (C) As President Lugo approaches nine months in office on
August 15, he faces increasing political and social
instability. Lugo continues to climb the learning curve,
compensating for his own political isolation and inexperience
by reaching out with increasing frequency to Congress and
other actors. However, the challenges continue to loom
large: a bloated state full of corrupt Colorado Party
supporters, many of whom do not even pretend to show up for
work; a weak and virtually dysfunctional judicial system;
deeply entrenched, shadowy interests which control the media,
state-owned enterprises, and all government ministries, as
well as the underground economy; and the public's extremely
high expectations for immediate results.


3. (C) Rumors persist that former coup-plotting General Lino
Oviedo, ex-President Nicanor Duarte Frutos, and/or Vice
President Frederico Franco continue to look for ways to cut
Lugo's term short. Emboffs are hearing increasing reports
that General Oviedo continues to jockey for a "democratic"
means into power. Most theories are based on impeachment
charges against Lugo, which would require a 2/3 vote in the
Lower House to charge and a 2/3 vote in the Senate to
convict. While Oviedo's UNACE party doesn't have the numbers
to initiate proceedings (or a plausible ground for
impeachment-- yet),most believe that Duarte's faction of the
Colorado Party would lend its support (in exchange for
letting Duarte back into the Senate),and that the remaining
deputies/senators could be "purchased" with political
leverage applied by Oviedo. We believe that given Oviedo's
history and personality (and advancing age),he has not
resigned himself to waiting out Lugo's term, and that he is
in fact likely engaged in some kind of conspiracy against the
president. In short, Oviedo is not going to go away.


4. (C) Lugo's relations with his Vice President are tense at
best, and the political sharks surrounding Lugo continue to
circle in search of increased space and power. Some
political actors believe that Franco has made a deal with
Oviedo to expedite Lugo's impeachment so Franco -- known for
being a very political animal himself -- can assume the
presidency, call vice presidential elections, and help Oviedo
get elected as vice president. Certainly, the divide between
Lugo and Franco is growing. However, Franco told the
Ambassador April 28 that he is not engaged in any plans to
unseat Lugo and that he will patiently remain in his position
and support Paraguay's democratic institutions. Franco
lamented that he learns of Paraguayan government business by
reading the newspaper, and is completely isolated from
decision making. Meanwhile, the pushing and pulling within
Lugo's inner circle has escalated. Most assume that Chief of
Staff Miguel Lopez Perito is calling the shots in Lugo's
government; others believe there is another hidden actor who
is making most policy decisions. Interior Minister Rafael
Filizzola appears to be a constant voice of moderation;
Liberal Party Senator (and recently resigned Justice/Labor
Minister) Blas Llano may be another. We have also heard
reports that the Venezuelans are assisting Lugo with his
communications strategy, but their presence is virtually
invisible.

5. (C) Lugo has been bogged down by several paternity
claims, and allegedly shuffled his cabinet in order to
distract the public from his personal scandals. Constant
press attention to Lugo's sexual activities as a priest and
bishop are taking a personal toll on the president. We know
that it pains him to be further distanced from the Catholic
Church. Many believe his late April cabinet changes in the
Ministries of Industry/Commerce, Agriculture, Education, and
Justice/Labor, followed by the Foreign Ministry, were meant
to bring the public's attention back to the business at hand.
Of the three women (a fourth in Spain was reported to exist
but denied having a child with Lugo) who came forward to
allege Lugo fathered one of their children, Lugo accepted
responsibility for only the first. For the other two, he has
said he will submit to the Paraguayan judicial system and
provide a DNA sample. Lugo knows that his opponents sought
out these women (or their lawyers) and paid them to come
forward. Then, as the paternity cases subsided, the press
attempted to link Lugo to the Cecilia Cubas kidnappers, but
the allegations fell apart when the sole witness admitted to
being paid off by ex-President Duarte to lie. Lugo's
response to the allegations against him has been strong; in
several public discourses in the past week he has almost
shaken in anger, in stark comparison to his characteristic
calm and measured speech.


6. (C) Unknown actors have attempted to take advantage of the
growing political instability by placing several "bombs"
(both real and fake) in downtown Asuncion, obviously hoping
to tip the balance against Lugo by generating insecurity.
However, the Lugo administration's response has been swift
and decisive. Lugo said late May 5 that his government would
disarm any attempts to destabilize it just as it disarmed the
purported bombs (reftels). The Embassy's technical
assistance to the Paraguayan government following several
bomb incidents was highlighted positively in the press, and
Lugo has personally and repeatedly expressed gratitude for
all U.S. security assistance. The swirling rumors about
responsibility for the bombs -- a real one discovered at the
Judicial Palace on April 29 and another discovered May 6 at a
gas station -- must be viewed like everything else through
the lens of Paraguayan conspiracy theory, in which truth
matters less than political perception (with the bottom line
being that we'll likely never know). The next step,
according to Llano, is a Roofless Movement campesino march
scheduled for May 12, which Duarte Frutos and Colorado
Senator Galaverna have allegedly organized. Llano said their
plan is to generate violence on the scale of the 1999 Marzo
Paraguayo, which left eight student protesters dead and
brought the Oviedo-backed government down. Llano said Lugo's
government would hold a press conference to outline the
measures they will take to manage the march in coming days,
thus hopefully deflating it.


7. (C) Lugo insiders report that the president is frustrated
with his inability to affect change, and we note backlash
against and pressure on (U.S.-funded) ministries or agencies
(prosecutors, customs, counternarcotics, and other law
enforcement agencies) who are supporting Lugo's
anti-corruption agenda. Many effective players are being
moved out or undermined as they get closer to prosecuting
those with vested political and economic interests. Lugo
appears to be coming to terms with the challenges he faces
and the legacy left him by the Colorados. Some of his own
ministers and advisors appear to be more interested in their
own political futures and in getting rich quick than they are
in pursuing national interests. Paraguay's corrupt
institutions have deep roots, and will not be changed
overnight.


8. (C) COMMENT: While one Lugo insider insists that the
president's morale is solid, we believe he is under great
pressure since the April 20 anniversary of his election. We
worry that the end game of some -- getting him to resign --
may become an increasing possibility. Several political
contacts have told us that Lugo has already attempted to
resign but was talked down by Llano, Filizzola and others.
We cannot know with any certainty what Oviedo or other actors
are planning, or the extent of the vice president's
involvement in such plans. We also cannot fully grasp the
power struggles in Lugo's inner circle, or whether Lugo has
any kind of master plan for governing. We continue to
believe that Lugo is pragmatic, has an affinity for the
United States, and sees us as a valuable partner.


9. (C) COMMENT CONTINUED: Several things are certain: 1) Lugo
is isolated and vulnerable, 2) there is an evident
disenchantment with Lugo's failure to deliver real change,
and 3) the cast of politically agile characters who seek to
remove Lugo from power changes tactics and ratchets up the
pressure each time they fail to incite outright public
opposition to Lugo. The unknowns in this equation appear to
be Lugo's own versatility and strength (which has surprised
us),his opponents' capacity to execute a democratic coup
(which we hope does not surprise us),and the factor of time,
as elements could continue to move against Lugo at any time
during the rest of his five-year term. Lugo will meet with
Brazilian President Lula May 7-8 and with Uruguayan President
Vasquez May 14-15. Both meetings should shore up Lugo and
his confidence. We continue to look for ways to publicly
support Paraguay's democratic institutions, including its
president. END COMMENT.


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